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Government overhauls coronavirus loan scheme

By: Rachel Miller

Date: 7 April 2020

Problems with the Coronavirus Business Interruption Loan Scheme (CBILS) have been addressed by the government.

Some of the strings attached to the original Coronavirus Business Interruption Loan Scheme left many small firms without access to much-needed finance. Last week it emerged that just 983 emergency loans had been approved by banks, out of 130,000 enquiries.

Now the government has said that any small business affected by the COVID-19 pandemic can qualify for an emergency loan application. Businesses do not have to be offered standard loan products first and they don't have to put up personal assets as collateral.

The changes to the rules have been described as a "big step forward" by the Federation of Small Businesses (FSB). "We welcome the chancellor's personal intervention to ensure that banks deliver the government-backed emergency loans which are urgently needed by many small businesses," said Mike Cherry, FSB national chairman.

"[Businesses] were promised interest-free, fee-free, government-backed support from banks but, until now, the process for securing it has proved nightmarish for many."

Adam Marshall, director general of the British Chambers of Commerce (BCC), said: "Improvements to the Coronavirus Business Interruption Loan scheme will help firms get access to cash more quickly, and the announcement of a new loan scheme for mid-sized companies closes a significant gap in existing support."

However, there are concerns that high interest rates will prevent many SMEs from taking on a loan. David Jinks, head of consumer research at ParcelHero said: "The Treasury has still not slapped restrictions on the interest rates that banks can charge for CBILS loans beyond the initial 12-month interest holiday. One national bank quoted customers interest rates as high as 12% for a CBILS loan; though typical CBILS rates seem to be between 2% and 6%. Considering the borrower always remains 100% liable for the debt and banks' backs are being covered to the tune of 80% by the government, 6% interest is still hardly attractive in the current conditions. We can see many more SMEs going to the wall rather than strike deals which could leave them struggling for years into the future."

A new survey of 250 growth businesses currently seeking investment, conducted by the Enterprise Investment Scheme Association (EISA), has found that more than nine out of ten of them could close down within the next 12 months if their current investment plans, disrupted by the coronavirus crisis, fail to materialise.

The EISA is lobbying the chancellor to increase the tax relief available to private investors for investments in qualifying Seed and Enterprise Investment Scheme (SEIS) businesses to 60% (from the current 50% for SEIS and 30% for EIS), and to extend the scheme for the period of the crisis.

Mark Brownridge, EISA director general, said, "Our survey shows very clearly that investors have taken fright at the current coronavirus disruption, which is resulting in many of our fast growth businesses fearing for their future. Of the 250 businesses in the survey over half represent the health, fintech, other tech and software solutions sectors, and these the very businesses that the UK will need as we exit the current crisis."